Magnitsky: The perils of ‘whistle-blowing’ in Russia

The relationship between the United States and Russia perfectly exemplifies the phrase "history repeats itself." In recent years, tension has fallen and risen in quick succession over myriad issues; Edward Snowden, the Syrian crisis, and most recently LGBT rights connected to the Sochi 2014 Olympic games. Among the reasons that tensions keep reemerging, despite the Obama administration’s promised ‘reset’, is the increasingly oppressive policy of Putin’s government within Russia. One of the most publicized examples of this was the Pussy Riot case that occurred last year. However, an arguably better example of the fragile relationship between the two nations is the Magnitsky affair.

In 2008, lawyer Sergei Magnitsky was imprisoned in Russia, where he was beaten, and denied medical attention. He died in Russian custody at 37-years-old..

His crime? Earlier in 2008 Magnitsky uncovered a fraud.

In 2007, American investor and CEO of Hermitage Capital Management, Bill Browder, faced unexplained hostility from the Russian government, including a ban from entering the country. A Russian Interior Ministry police unit raided his office and cleared it of valuable documents—pressing charges that Hermitage owed large sums of money to three shell companies, even though it was publicly known that Hermitage faced no tax evasion problems. Browder then hired Magnitsky, a 35-year-old lawyer, to look into the matter.

Magnitsky discovered a large-scale scam. The documents that were seized by the police were used to forge contracts and re-register the three shell companies to which Hermitage allegedly owed money. Hermitage filed six complaints to three law enforcement agencies in Russia and after a year, Magnitsky received a letter explaining everything. The re-registered companies opened accounts with one bank, and immediately after the accounts opened, the bank’s deposits spiked $230 million—the exact sum of Hermitage’s total tax payment for 2006. The fraudsters claimed stolen Hermitage companies had not profited and so Hermitage had to refund them. The refund was exactly $230 million, the money Hermitage had paid Russia in taxes.

Because the fraud happened only after the Interior Ministry police unit raided Hermitage offices, investigators believe that the Russian government was involved in the affair at some level. Their involvement turns Magnitsy’s subsequent death in prison from a freak accident to what appears a premeditated murder.

Recognizing the Russian government’s involvement in the scheme, Browder launched a full court press in the West. Senator Ben Cardin and Representative Jim McGovern heard Browder’s appeal, and decided to adopt the Sergei Magnitsky Rule of Law Accountability Act. The legislation was approved by the House and then by the Senate in 2012. The intention of the law was to punish officials involved in Magnitsky’s death by prohibiting their entrance into the United States as well as banning them from using American banks.

The Russian legislature, irritated by the Magnistky Act, responded with the Dima Yakovlev Law. Dima Yakovlev was an 18-month-old Russian boy who died of heatstroke after his adoptive American father left him in a locked car on a hot summer day. The Russian Children’s Rights Organization asserts that nineteen Russian children died while in the legal custody of US adoptive families over the past decade. The Dima Yakovlev Law not only banned US adoptions of Russian children, but also barred some American diplomats from entering Russia.

The Sergei Magnitsky Act and the Dima Yakovlev Law created lists of Americans and Russians who could not enter the respective countries. The exact number of people are unknown, but it is estimated to be around 100 between the two lists. Dipolomatic tensions continued to rise when, on April 12, 2013, the US State Department issued a list of 18 Russians that they believe were involved in the murder of Sergei Magnitsky. Russia responded on April 13, accusing 18 American diplomats of human rights abuses.

The unresolved fallout of the Magnitsky affair bodes poorly for diplomatic relations between Russia and the United States. A Russian court issued an international arrest warrant for Bill Browder on April 23 2013, but Browder openly ridiculed the act. In July 2013 the Russian court found both Sergei Magnitsky and Bill Browder guilty of tax evasion making Magnitsky’s posthumous conviction one of the first of its kind. Evidence shows that members of the Russian government were at least partially responsible for the fraud that Magnitsky uncovered. Magnitsky’s death in Russian prison and his subsequent conviction, exemplifies the manipulative practices of Putin’s government, and complicates the already unsteady diplomatic ties between Russia and the United States.

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